How do you use cash back on a credit card

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“Cash back” typically refers to cash-back rewards cardholders may earn when making a transaction with a credit card. It shouldn’t be confused with the cash back you may withdraw from a bank account at checkout using a debit card. It’s also distinct from using a credit card to withdraw cash from an ATM—which is called a cash advance and is not a recommended practice.

Many credit card issuers offer cash-back reward programs cardholders can leverage to see a small return on every purchase made. While gaining rewards should certainly not be an incentive for overspending on a credit card, it is helpful to know exactly how specific rewards can be earned and redeemed. Different rewards programs offer different reward rates, and some put limits on which spending categories earn what rates, so it is important to fully understand the terms and conditions of your credit card rewards before deciding which credit card to apply for.

How Does Cash Back Work?

A cash-back card will typically allow cardholders to accumulate rewards with each purchase made using the card. Some may earn a flat percentage back on each eligible purchase, while others offer elevated earning rates on bonus categories such as groceries, gas or restaurants. Accumulated rewards are redeemable as cash often in the form of a check, a statement credit or a deposit to a bank account.

How Do Cash-Back Rewards Work With Credit Cards?

Some cash-back credit cards reward all eligible purchases with a flat-rate percentage return, such as 1.5% or 2% back on all spending. Others offer tiered reward categories to reward spending on, for example, groceries and gas at higher rates than other purchases. Yet other cards offer rotating redemption categories each month or quarter.

Flat-Rate Rewards

Some cards, such as the Wells Fargo Active Cash® Card (rates & fees), offer a flat rate reward on all eligible purchases. The Wells Fargo Active Cash earns 2% cash rewards on purchases and remains the plastic standard for flat-rate rewards. For those seeking simple, easy-to-track cash back, a card like this will likely be among your best options.

Tiered Reward Earning

Other cards, like the Blue Cash Preferred® Card from American Express, offer a more complex structure for earning rewards. The Blue Cash Preferred earns 6% cash back at U.S. supermarkets on up to $6,000 per year in purchases (then 1%), 6% cash back on select U.S. streaming subscriptions, 3% cash back at U.S. gas stations and on transit (including taxis/rideshare, parking, tolls, trains, buses and more) and 1% cash back on other eligible purchases. Cash back is received in the form of Reward Dollars that can be redeemed as a statement credit. The card has a $0 intro annual fee for the first year, then $95 annual fee (terms apply, see rates & fees).

While cards such as this typically offer bonus categories that earn higher rewards, the lowest reward category or the “catch-all” category for all non-bonus-category purchases is usually just 1% back—and won’t match what you could earn with the best flat-rate cash-back cards.

Rotating Reward Categories

Some cards will divide cash back rewards between spending categories that change on a quarterly (or some other time period) basis. For example, the Discover it® Cash Back earns 5% cash back on everyday purchases at different places each quarter up to a quarterly maximum of $1,500 in spending when activated. Plus, earn unlimited 1% cash back on all other purchases – automatically.

Beware some cards require activation of a category each quarter or month before you’re actually eligible to earn rewards on purchases in the category. And, because rewards categories change, cards with rotating reward structures may require additional attention paid to the rewards systems in order to realize the full potential of rewards in each bonus period.

Other Structures

The Chase Freedom Flex℠ is an example of a card that combines multiple approaches. The Freedom Flex earns 5% cash back on up to $1,500 in categories that rotate quarterly (requires activation), 5% on travel purchased through Chase Ultimate Rewards®, 3% on dining and drugstores and 1% on all other purchases.

Yet others, such as the Citi Custom Cash℠ Card, offer categories that change with your spending habits: the card earns 5% cash back on purchases in a top eligible spend category each billing cycle, up to the first $500 in spending each month and 1% cash back on all other purchases.

Cash Back vs. Cash Advance

Cash back should not be confused with a credit card cash advance. Though the term “cash back” is often applied to a withdrawal of checking account funds in the same transaction as a debit card purchase at, for instance, a grocery store, this sort of “cash back” is something else entirely with a credit card. Cash advances allow you to borrow money against your credit card’s line of credit by withdrawing cash from an ATM using your credit card.

Cash advances typically involve a separate cash advance APR—often higher than your card’s regular APR—and begin incurring interest the same day you borrow the cash, with no grace period. There will also typically be a cash advance fee. Cash advances are not recommended, as the cost of borrowing money in a cash advance is usually astronomical compared to other options for getting the funds you need.

How Can I Get Cash From a Credit Card?

Conducting a cash advance with a credit card often incurs fees and a high APR, and doesn’t include a grace period for paying down the balance before interest accrues. We do not recommend conducting a cash advance, but if you have to, you can use your credit card at an ATM as you would a debit card. Be sure to carefully read your card agreement to understand all terms of a cash advance before initiating a transaction.

How Do You Redeem Cash-Back Rewards?

Though specifics vary from issuer to issuer, you’ll typically redeem cash-back rewards earned with your credit card by making a request using an issuer’s app or website. Log into the mobile or online banking system and make a request to redeem rewards.

With many cards, you’ll be able to choose your preferred redemption method for your cash back: you can receive your rewards as a statement credit, as a deposit to a qualifying bank account or as a check the issuer will mail to you. Some cash-back cards also allow you to redeem cash back by applying it to purchases during an online checkout with a partner.

Note that in some cases, your cash back will be redeemed automatically and you won’t have an opportunity to select your preferred option. For example, with the American Express Blue Business Cash™ Card, any cash back you’ve earned is automatically applied as a statement credit each billing cycle.

What follows are details on commonly available redemption methods for your cash back.

Check

Some issuers may disburse rewards by mailing you a check. Depending on your card agreement, a check may be automatically sent every so often or you may need to request it. A check may also be an optional redemption method alongside other choices. Checks may be one of the slower redemption methods, since you’ll be waiting on a physical item to arrive by mail.

Statement Credit

Another redemption option many issuers offer is cash back as a statement credit. Certainly one we see often in credit card agreements we review, the statement credit delivers your cash back directly to your credit card account by subtracting the amount of rewards you’re redeeming from your balance. This type of redemption option generally takes the least amount of time.

Bank Transfer or Direct Deposit

Some issuers—especially banks also offering checking and savings accounts—will offer a bank transfer or direct deposit as a means of completing your reward redemption. You can redeem rewards as a deposit into an eligible checking, savings or other type of cash account and many issuers make this a fee-free, fairly easy process.

Gift Cards

Gift cards are often listed as a redemption option for cash back, but beware gift card redemption may provide a lesser value per reward point or dollar than other redemption options. Gift cards may also limit your options during redemption—typically, we recommend redeeming rewards for the closest thing to cold, hard cash instead.

Bottom Line

Cash-back credit cards earn rewards on eligible purchases and can be a lucrative benefit to paying with a credit card. Earning and redeeming cash-back rewards both involve nuanced terms you should understand before applying for a credit card that offers cash back.

You should also know that “cash back” as it’s used to refer to withdrawing cash at a merchant’s point of sale with a debit card is not the same with a credit card. Using a credit card to withdraw cash against your revolving line of credit is called a cash advance and is generally not the most affordable way to borrow cash.

To view rates and fees for the Blue Cash Preferred® Card from American Express please visit this page.

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